"Input price pressures were notably elevated in manufacturing and construction across multiple districts, with widespread reports of price increases for energy, transportation, and raw materials, particularly metals and petrochemicals," the Fed's report said. Multiple districts continued to report tariff-related impacts, the report added, and firms reported "significant" healthcare and insurance cost pressures.
Financial markets are pricing about a 65% chance of a rate hike this month and a 35% chance of a continued hold, reflecting unusually high uncertainty so close to a meeting.
The data in the report was collected on or before August 24.
Angst over inflation was palpable, if not obviously any worse than it had been in the previous report, which was published in mid-July.
"Contacts across industries expressed heightened uncertainty and upside risks to inflation around elevated energy prices and potential new tariffs," the Boston Fed reported. "Many contacts cited high energy costs as a strain on consumer budgets and were concerned that the impacts could intensify during the home heating season if the conflict in the Middle East remained unresolved."
The latest report mentioned inflation 17 times, compared with 18 times in the last report.
Observations of weakness in the housing market were rife. "A window retailer noted that sales slowed as consumers were hesitant to invest in their homes amid inflation and rising mortgage rates," the New York Fed reported. "A contact in Western Tennessee described the housing market as transitioning from stable to slow, with inventories increasing and homes remaining on the market for longer periods," the St. Louis Fed reported.
At the same time, there was little suggestion that wage growth was a big factor in pushing up inflation, though some districts noted pockets of pressure for specific sectors like construction and manufacturing, including a Maryland construction company telling the Richmond Fed it had implemented a 35% pay increase to retain workers.
By contrast, one leisure and hospitality contact in the San Francisco Fed's district noted that softer labor market conditions and less competition for workers had led to a "more conservative" wage increase, and one services firm in the Cleveland Fed's district reduced salaries for top staff by 10% as part of broader cost-cutting measures.
“It’s hard, as an employer, to look at my employees and say, ‘I cannot pay you any more right now because my margin is very slim," the owner of an energy installation company told the Minneapolis Fed.”
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